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Self-Employed Workers Face Mortgage Hurdles

Being your own boss allows for innovation and independence. But the self-employed also face difficulties when applying for a mortgage.

The biggest hurdle, experts say, is demonstrating they meet the lender’s income requirements. Self-employed workers don’t receive a W-2 form, the document that shows annual wages and withholding amounts. Instead, lenders need to rely on tax returns to verify a self-employed applicant’s income. That’s a challenge for lenders, because on one hand, self-employed applicants need to show enough income to qualify for a mortgage. On the other hand, they want to lower their taxable income by taking deductions and write-offs that they’re legally entitled to.

Here are a few things to consider if you’re self-employed and plan to apply for a jumbo mortgage:

Find a good accountant.

Not only can an accountant help explain your business and its cash flow to a potential lender, but he or she can provide invaluable advice on structuring that loan to benefit both the business and personal tax situations.

Seek business-savvy underwriters.

Make sure your lender has sufficient expertise to analyze your tax returns, both business and personal. Staff underwriters should be able to understand a Schedule C and all other schedules annexed to the tax return.

Consider a mortgage broker.

Rather than applying to a direct lender, consider a mortgage broker, who works with many different lenders and can try to find the best program to fit your situation. “Self-employed applicants are not cookie-cutter loans,” says Mat Ishbia, president and chief executive officer of United Wholesale Mortgage in Troy, Mich. An independent mortgage broker can also look for a portfolio lender, which will have more flexibility on underwriting than a lender planning to sell the jumbo to an investor.